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1. Marketing Management Of International Trade October - December 2011 Ing. Ilona Bergquist, MBA
2. A little bit about me….
3. OBJECTIVES… KEY TOPICS… REQUIREMENTS The goal of the subject: To gain a good understanding of international trade aspects, the forces and issues related to conducting business abroad. To acquire knowledge about strategic marketing activities and HR-related activities needed for managing international business operations. Key topic areas:  International trade development, role in the economy, benefits for companies Entry modes for international business and developing international strategies International marketing Marketing Research; Creating and leveraging knowledge Managing business plans; Managing HR Requirements: Each student to participate in a group case study presentation Each student to prepare a paper on a selected topic Final exam based on material covered
4. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Unit 1: Role of international trade in the economy Benefits for the country Structures of international trade Environmental forces: cultural, economic, political, legal, technological, competitive International trade organizations Unit 2: Motivation of companies to expand abroad Opportunities and barriers of int’l trade International, multinational, global and transnational mentality
5. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Unit 1: International trade and its role in the economy Benefits for the country: Effectivity - focusing on key product categories where the country has competitive advantage can save on labor work (i.e. Japan – electronics, cars, optics) Proportionality - only few countries can manage on its own all resources/ has enough industrial base (US, BRIC) Demonstration effect - how developed the economy is (technology, trends, design….) Supports cooperation of countries and lowers a risk of a conflict Helps in educational growth - export forces to study technology news/ advances, ways of trade development, languages cultural learnings Governments’ approach: Passive - protectionalism of trade Active - liberalism, makes export key driver of economic growth of the country
6. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Growth of world export Volume of int’l trade has been growing since the end of WWII Growth rate of int’l trade/export has been exceeding the growth rate of world production since 1950 (export 6.2%, GDP 3.8%) The share of int’l export on world production: In 1945: 5.5% In 1990: 20% Int’l trade today, includes not only trade with commodity and goods, but also software, services and capital Share of regions on world export has been changing Int’l trade created the phenomenon of globalization
7. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Territorial structure of international trade The world export has very concentrated territorial structure: 20% of economies involved in world trade create 90% of the volume
8. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Commodity structure of international trade Trade with goods/commodities 81%, trade with services 19% of world trade value Int’l transportation services and storage (25%) Tourism services (25%) Other: Insurance, Banking, Patents, Know-how, Franchising, Leasing, Factoring, IT, telco, cultural services (50%) The growth rate of value of goods/commodities exceeds the rate of volume about twice Influencing factors – USD depreciation and inflation, increasing size of value added products
9. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Environmental forces in global markets Successful int’l mktg strategy requires in-depth environmental analysis as forces can differ dramatically in countries Cultural and social forces – beliefs and values regarding family, religion, education, health, recreation (Hofstede’s Five Dimensions of Nat’l Culture) Implications – for product development/offering, advertising, packaging, pricing….as well as biz negotiations (i.e.. gifts – introduction to negotiations vs. bribe), decision-making process, internal management practices, etc Economic forces – economic indicators, such as GDP, growth rates, unemployment, corporate bankruptcies, currency, trade imbalance, financial systems Implications – projections for business potential, risk prevention
10. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Environmental forces in global markets Political, legal and regulatory forces – laws and regulatory have direct effects on firm, political has indirect effect (politicians directly effect the legislation or industry associations – i.e. SUKL) Implications – be aware of import tariffs, a quota, embargo, or any industry specific regulations Ethical, social responsibility forces – use of bribes, standards regarding intellectual property (China, Vietnam!), pirated/counterfeit products are estimated to represent 5-7% of worldwide merchandise trade Implications – consider company code of ethics and cultural practices of the country you are in as well as your home country. BSR/Business for social responsibility – globally based resource system Starbucks – global code of ethics strives to protect agricultural workers who harvest coffee beans
11. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Environmental forces in global markets Technological forces – advances in technology are making marketing easier (internet, smart phones…). The majority of young adults, age 16-24, in Europe prefer ads on the web over any other media vehicle Implications – leverage technology in marketing activities, both in R&D/product innovations and in communications Competitive forces – each country has a unique competitive aspects, i.e. cheaper labor, technology/know-how Implications – understand the advantages and leverage to make your business most effective and efficient
12. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Select International Trade Associations European Union (est. 1958) World Trade Organizations (WTO, est. 1995, successor of GATT est. 1947) North American Free Trade Associations (NAFTA, est. 1994) Asia-Pacific Economic Cooperation (APEC, est. 1989, now 21 members) Common Market of the Southern Cone (MERCOSUR, est. 1991) Typical goals of TA: Lower / eliminate tariffs on goods produced and traded among member states – improve economic efficiency and stimulate growth EU: work towards standardizing business regulations and requirements, import duties, VAT, eliminating customs checks, creating a standardized currency
13. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Unit 1: Role of international trade in the economy Benefits for the country Structures of international trade Environmental forces: cultural, economic, political, legal, technological, competitive International trade organizations Unit 2: Motivation of companies to expand abroad Opportunities and barriers of int’l trade International, multinational, global and transnational mentality
14. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Unit 2: Motivation of companies to expand abroad Early motives: Investing abroad to secure key supplies / acquire resources (Standard Oil, Goodyear) Market seeking behavior: a) leverage competitive advantages in off shore markets ….resulted in economies of scale and scope (Nokia) b) seeking new markets as domestic markets matures (Nestle, Bayer, Ford)c)diversifying … protection from one country down-turn Desire to access low cost factors of production, esp. labor and capital (government investment subsidy), grew in the 60’ties as tariff barriers declined Emerging motivations: Increasing scale economies, high R&D investment, shortening product life cycles – transformed many industries into global … making worldwide scope of activities a prerequisite to survive Gillette's MAC: $ 200M in R&D, $ 550M in capital, $ 300M in marketing efforts
15. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Emerging motivations (cont’d) Global scanning & learning capability – huge informational advantage (locating more efficient sources, more advanced products or processes, new needs…) Competitive positioning (cross-subsidization of markets – controversial, Kagome ) In summary, three conditions must be met for the existence of MNC: Foreign country must offer some location-specific advantage (Motivation) The company must have some strategic competencies / advantages to counteract its disadvantages of its relative unfamiliarity with foreign market Expending internally (owned subsidiaries) vs. external mechanisms/contracts or licenses
16. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Model for internationalization: a) Gradually committing resources and building knowledge b) Acquiring local partners to shortcut the process of building up local knowledge - buying chain Asda in UK - subcontracting to local partners (in Canada, manages all from US,but ships thu Canadian Postal service)
17. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Approaches to Foreign Market Entry Wholly owned subsidiary Joint venturewith local partner Franchising Level of control over foreign activities Licensing Export throughagent or distributor Indirectexport Amount of resources committed to foreign market Three-pronged strategy for int’l markets: 1. company owned stores, 2. JV, 3. Licensees 1. Owned breweries, 2. JV,in USA, keeps importing
18. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE Risks in international business: Market risks – business results will not be achieved, lower sales or lower profits Protection measures: possible in contracts to negotiate flexible pricing to some extent, based on costs of raw material Commercial risks – commitments from suppliers not fulfilled or with defects, payment delayed or not realized, etc. Protection measures: good partner selection and well-defined contracts with payment terms, building long term partners / trust Logistical risks – lost or damaged goods during transportation.Protection measures: insurance of transportation, reliable insurance company and appropriate ins. level Territorial risks (barriers) – resulting from political and economical situation of the foreign country, local administrative measures (increased taxation, tariffs), natural disasters, etc. Protection measures: building knowledge about the markets, understanding ratings of states (provided by rating agencies), possibility of insuring territorial risks Exchange rates risks. Important to select a stable, strong currency. Possible to use factoring and other financial instruments.
19. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE The Evolving Mentality: International to Transnational International Mentality Overseas operations viewed as distant outposts, supporting the parent company through incremental sales / profits Products are developed for the domestic market and subsequently sold abroad, technology is transferred from the parent co. to overseas operations, offshore manufacturing is seen as way to protect home market Managers assigned to overseas operations – domestic misfits who happen to know the foreign language or previously lived abroad Decisions related to foreign operations – made in an opportunistic or ad hoc manner Multinational Mentality Typically comes with growing importance of sales / profits from foreign operations Companies modify their products / services / management practices country by country Building multiple, nationally responsive strategies of companies’ subsidiaries + very responsive mktg approaches in each market Managers tend to be highly independent entrepreneurs, often nationals of the host country, able to build up significant local growth and independence from HQ
20. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE The Evolving Mentality: International to Transnational Global Mentality Multinational mentality can lead to many inefficiencies (production, logistics, design, distribution, etc) Global mentality: “assumption that national tastes and preferences are more similar than different or that they can be made similar by providing customers with standardized products with adequate cost and quality advantages over local products” Many Japanese companies – creating products for the world market and manufacturing them on a global scale in highly efficient plants …. Very successful model thru the 80ties Requires more central coordination and control. R&D typically managed from HQ and most strategic decisions also taken at the center Transnational Mentality Many host governments viewed these global co. as threatening …and increased the restrictions and demands on them – requiring them to invest, transfer technology, meet local content requirement Customers refused homogenized global products asserting national preferences, but w/o sacrificing the high-quality level and lower cost of global products EMERGING REQUIREMENT: be responsive to local needs while retaining global efficiency Activities neither centralized or decentralized (dispersed but specialized), shared decision making
21. LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE The Evolving Mentality: International to Transnational Depending on the industry, company’s strategic position and other factors a company might reasonably operate with any one of these strategic mentalities Most companies will exhibits some attributes of each of these different strategic approaches Menu adopted to local tastes Global brands HQ decisions Regional centers Nationally adapted products
22. Next Session Key topic areas:  International trade development, role in the economy, benefits for companies Entry modes for international business and developing international strategies International marketing Marketing Research; Creating and leveraging knowledge Managing business plans; Managing HR Home work - Assessment papers due: 1. The globalization of markets. 2. Global strategy in a world of nations. 3. Why strategic alliances?